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Full text of "ANNUAL REPORT - ONTARIO ENERGY BOARD 1967"

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ANNUAL REPORT 
OF 
THE ONTARIO ENERGY BOARD 
YEAR ENDING DECEMBER 31, 1967. 




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ONTARIO 



TELEPHONE 
365 - 2851 



Ontario Energy Board 



790 BAY STREET 
TORONTO 2 



January 31, 1968. 



Sir: 

I beg to submit the Annual Report for 1967 
of The Ontario Energy Board, and I have the honour 
to be, Sir, 

Yours faithfully, 




A. R. Crozier, 
Chairman. 



The Honourable J. R. Simonett..,. 

Minister of Energy &. Resources Management, 

Parliament Buildings, 

Toronto, Ontario. 



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EIGHTH ANNUAL REPORT 



OF 



THE ONTARIO ENERGY BOARD 



YEAR ENDING DECEMBER 31, 1967 



INTRODUCTION 

This report is submitted in accordance with section 
9 of The Ontario Energy Board Act, 1964, and it outlines the 
activities of the Board for the calendar year ending December 
31, 1967. 

The Ontario Energy Board acts under the authority 
of The Ontario Energy Board Act, 1962+ , and amendments, 
references from the Minister of Energy and Resources Manage- 
ment pursuant to sections 6 or 10 of The Energy Act, 1962+ , 
those sections of The Municipal Franchises Act that pertain 
to gas, and one section of The Assessment Act. 

The functions of the Board are as follows: 

(a) Under The Ontario Energy Board Act, 1964 : 

Approving and fixing the rates and charges for the 
sale, transmission, distribution and storage of gas 
in the Province. 

Granting leave to construct transmission pipe lines, 
production lines, distribution lines and stations. 

Granting authority to expropriate land for pipe lines 
and stations. 

Recommending designation of lands as gas storage areas. 

Authorizing storage of gas in designated gas storage 
areas. 

Requiring the joining of interests in gas or oil pools. 

Examining and reporting on any matters pertaining to 
energy referred to the Board by the Lieutenant-Governor 
in Council. 



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(b) Under The Energy Act, 1964 : 

Examining and reporting on certain matters referred 
to the Board by the Minister of Energy and Resources 
Management . 

(c) Under The Municipal Franchises Act : 

Approving terms and conditions of franchise agreements 

Granting Certificates of Public Convenience and 
Necessity. 

(d) Under The Assessment Act : 

Determination of proper classification of pipe lines 
for assessment purposes, when classification as 
transmission lines is in dispute. 

HEARING STATISTICS 

During the year the Board held eighty-two hearings 

classified as follows: 

The Ontario Energy Board Act, 1964 

Rates and other charges 

(Section 19 ) 19 

Leaves to construct transmission pipe lines 
(Section 37) 6 

Expropriations for pipe lines 

(Section 40) 33 

Joining of interests in oil pool 

(Section 24) 1 

Drilling of wells in designated gas storage 

areas 

(Section 23, referred by Minister) 2 

Reference by Lieutenant-Governor in Council 
(Section 36) 1 

Rescinding and Amending Orders 

(Section 30) 6 



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The Municipal Franchises Act 

Terms and conditions of gas franchise 

agreements 

(Section 9) 5 

Certificates of Public Convenience and 

Necessity 

(Section 8) 9 

Total 82 

GENERAL ADMINISTRATION 

In accordance with the usual practice, the Board 
held its hearings at locations most convenient for the 
applicants and other interested parties. Sixteen hearings 
were held outside Toronto. 

The Board held fourteen Board meetings as well 
as many pre-hearing conferences and interviews during the 
course of the year. In addition, several trips were made 
to the sites of petroleum and natural gas industry projects 
proposed or under construction. 

Two Board members took an active part in the 1967 
Conference of Canadian Public Utilities Commissioners, which 
was held in Victoria, British Columbia, on September ldth, 
19th and 20th. Representatives from all ten provinces were 
present and exchanged information and views on a number of 
important problems of rate regulation, including depreciation, 
income tax, financing, jurisdiction and practice and procedure 
LEGISLATION AND REGULATION 

The Ontario Energy Board Act, 1962+ , was amended at 



- k - 

the 1967 Session of the Legislature to clarify certain 
provisions and broaden the powers of the Board. New 
simplified procedures were also established, by O.Reg. 99/67, 
which facilitate administration of section 37 (2) of the 
Act and the Uniform System of Accounts. At the close of the 
year, the Board arranged for the printing of an Office 
Consolidation of the Statutes and regulations administered 
by it . 
RATES 

The hearings on the gas rates of Lakeland Natural 
Gas Limited were concluded on March 7, 1967, and the decision 
of the Board was issued on May 26, I967. The Board ? s Reasons 
for Decision, which are available in printed form, contain a 
thorough analysis of the two thousand pages of evidence re- 
ceived at the hearings. In particular, the Board made a 
careful examination of the cost of money and the reasonable- 
ness of the return earned. The rates applied for were 
approved. 

The other hearings on gas rates were for Orders 
for specific use, e.g. large volume industrial, or for the 
initiation or continuation of interim rates pending a final 
determination by the Board. Some of these rates are of major 
importance; a single user processing gas into other products 
such as fertilizer may account for five per cent or more of 
the total volume of gas sold by a major gas distributor. 



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A good example is the plant of Canadian Industries Limited, 
which commenced operations at Courtright, Ontario, in 1967, 
under rates approved in I965. An important industrial user, 
for whom rates were approved in 1967, is Canadian Pittsburgh 
Industries Limited at its Owen Sound plant. 

The Board has kept close watch on the increasing 
level of earnings of all the major gas distributors in Ontario 
in order to provide for a review of the earnings of any company 
at a public hearing on its rates whenever this seems necessary. 
Close attention has also had to be given to the uncertainties 
affecting future supplies and costs of gas to Ontario distri- 
butors and to the present high cost of money. 
UNIFORM SYSTEM OF ACCOUNTS 

The Uniform System of Accounts which was prescribed 
for gas companies in July, I966, by . R.eg. 22+5/66, came into 
force for Northern and Central Gas Company Limited and its 
Ontario gas subsidiaries on January 1, 1967, for Union Gas 
Company of Canada, Limited, and United Gas Limited on April 1, 
1967, and for The Consumers' Gas Company on October 1, 1967. 
The implementation of the system has required a great deal of 
detailed work by the staffs of the companies and of the Board, 
much of which has not yet been completed. 

In the case of the Northern and Central group, the 
companies propose to adopt the "flow-through" tax treatment 



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for rate-making, and in order to properly consider all 
aspects of this change, the companies were granted a year's 
extension for compliance with O.Reg. 245/66 in respect of the 
setting up and maintaining of Account 276. Subject to this 
exception, and to a review by the company of its depreciation 
rates, compliance with O.Reg. 245/66 has been substantially 
completed, including the adjustments in the accounts of 
Lakeland Natural Gas Limited to reflect the findings of the 
Board in its 1967 Decision on the rates of the company. 

Union Gas Company of Canada, Limited, and United 
Gas Limited have not yet completed their initial year under 
the Uniform System of Accounts. Major problems of compliance 
are not anticipated but several matters will require action 
by the Board. 

In the case of The Consumers' Gas Company a 
number of matters of major importance require the attention 
of the company and the Board in implementing the new system 
of accounts. Preparation was made well in advance by the 
company, with the assignment of special staff, and a great 
deal of work has been done already, but much remains to be 
done. In the matter of depreciation, the company has gone 
beyond the bare requirements of O.Reg. 245/66 and is proposing 
adjustments in its Accounts for past depreciation. The work 
being done by the company will not be completed until March 
of 1968 and various rulings by the Board will be required 



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before full effect can be given to it. In making these 
decisions the Board will have the assistance of the Energy- 
Returns Officer and his staff, and where necessary in matters 
of major difficulty, of its consultants, McDonald, Currie and 
Company. The Board has postponed earlier plans for a rates 
hearing on The Consumers' Gas Company in order to first com- 
plete the work on the accounts of the company. 
CONSTRUCTION OF PIPE LINES 

During the year the Board heard and decided a 
number of important applications for leave to construct 
transmission lines. The major projects were : - 

(a) An east-west line of The Consumers' Gas Company 
partly 30" in diameter and partly 26", immediately 
to the north of Metropolitan Toronto, in order to 
meet increased demands for gas by the company's 
customers; 

(b) A 24" line of Union Gas Company of Canada, Limited, 
between its Dawn 156 gas storage pool and its Dawn 
Township compressor station in order to obtain 
maximum deliverability from the storage pool; 

(c) A 20" line extending 17 miles south from the Dawn 
Township compressor station of Union Gas Company of 
Canada, Limited, being the first stage of a looping 
of the existing 16" pipe line from Dawn Township to 
the City of Windsor to meet increased demands for gas; 
and an 

(d) 82+-mile 8" gas transmission line, previously author- 
ized as a 6" line, constructed by Twin City Gas 
Company Limited from Vermilion Bay to Bruce Lake. 

EXPROPRIATION HEARINGS 

When the Board has granted leave for the construc- 
tion of a pipe line, the company which has obtained such leave 



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may apply to the Board for authority to expropriate land for 
the purposes of the line. It is the practice of the Board 
to hear such applications near the areas affected, in order 
that the landowners will have the fullest opportunity to be 
heard. Thirty-three such applications were heard during 
the year. 

Most of the applications heard during the year 
were for easements along the third stage of the route of the 
Dawn-Hamilton 3V gas transmission line of Union Gas Company 
of Canada, Limited. The third stage, comprising the 37 miles 
between Woodstock and Hamilton was completed in 1967- Each 
expropriation has its own problems of avoiding undue incon- 
venience and damage, and the terms on which expropriations 
were authorized varied according to the circumstances. One 
new development in these proceedings that is common to many 
of them is the wish of landowners to have top soil removed 
and replaced. With certain characteristics of subsoil and 
terrain, this appeared to be advantageous and the Board 
Orders accordingly provided for it in these cases. 

As in previous years, the Government appointed 
an inspector to act as liaison between the landowners and 
the pipe line company during construction and clean-up 
operations in cultivated areas. The inspector also insures 
that terms and conditions of Board Orders are complied with 



- 9 - 

by the company constructing the line. 

In authorizing expropriation, the Board does not 
deal with compensation. The company constructing the pipe 
line is required by Statute to make due compensation for 
the land and for any damages. If the parties are unable to 
agree on the amounts, the Statutes provide for conciliation 
by a Board of Negotiation and, if this procedure is not re- 
quested by the parties or does not achieve settlement, for 
arbitration by a Board of Arbitration. 
APPROVALS AND CERTIFICATES 

At ^he end of 1966, Provincial Gas Company 
Limited and Grimsby Natural Gas Company Limited, which 
owned and operated the major gas systems in the Niagara 
Peninsula, distributed their assets on a winding-up to the 
parent company, The Consumers' Gas Company. The franchises 
having been assigned to the latter company, the Board, after 
hearings, granted Certificates of Public Convenience and 
Necessity to it. The Consumers* Gas Company has continued 
to operate the systems as separate divisions, identified 
by the names of the old companies, and has made no changes 
in the rates, which are among the lowest in the Province. 

Upon the acquisition of the gas system at Sault 
Ste. Marie by Northern and Central Gas Company Limited 
from Great Northern Gas Company Limited the Board, after 
a hearing at Sault Ste. Marie, granted a Certificate of 



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Public Convenience and Necessity to the purchaser. It is 
expected that this sytem will be converted to natural gas 
in the fall of 1968, with appropriate rate reductions, when 
natural gas is made available at this point by Trans-Canada 
Pipe Lines Limited on completion of the "Great Lakes" project 

Four Certificates of Public Convenience and 
Necessity were granted during the year to provide for ex- 
pansion of service areas. The Board also heard and granted 
five applications for approval of the terms and conditions 
of municipal franchises. These certificates and approvals 
provided, among other things, for gas service in the Town- 
ships of Osnabruck, Melancthon, Cavan and Caledon. 

There are in all 96i+ organized municipalities in 
Ontario, and those now being served with gas contain all 
but a small part of the population. 

Gas service is provided in 509 cities, towns, 
villages and townships, 2 improvement districts and 8 un- 
organized townships. Of these, Sault Ste. Marie is the only 
one presently being served with manufactured gas instead of 
natural gas and it expects to receive natural gas in 1968. 
GAS STORAGE AREAS 

During 1966 the gas storage area of the Dawn 
#59-85 Pool of Union Gas Company of Canada, Limited, was 
enlarged by a regulation made pursuant to section 35 of 



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The Ontario Energy Board Act, 196i+. Early in 1967, the 
Board made an Order granting the company authority to 
inject gas in the additional area, but restricted the 
authority to specified geological formations. The Board 
subsequently heard an application by the company to remove 
the restrictions and in its decision the Board retained 
the restrictions in a modified form. The company has 
appealed to the Court of Appeal, questioning the legal 
power of the Board to attach such restrictions. 

Early in the year Tecumseh Gas Storage Limited 
proceeded with a well-drilling program for the development 
of its Kimball-Colinville gas storage pool. Applications 
were made to the Minister of Energy and Resources Manage- 
ment for permits to drill four wells and, on reference by the 
Minister to the Board, the Board found that the wells were 
required to increase input and output capacity and to pro- 
vide additional information about the storage reservoir, 
and recommended that permits be granted. 

Upon a reference by the Lieutenant-Governor in 
Council, the Board made an investigation of certain aspects 
of production of oil from an oil pool within the "Dawn 156" 
gas storage area. As some landowners were dissatisfied be- 
cause the royalties are not being shared and as the Board 9 s 
powers to dispose of this question are derived from section 



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Zk of The Ontario Energy Board Act, 1964* after a hearing 
under that section, and as no application under that section 
was before the Board, the Board took no further action after 
explaining its position to the interested parties. 

In its Gas Storage Report dated May i+, 196i+, the 
Board set out the principles which it considered appropriate 
to apply if landowners were then negotiating or re-negotiating 
their rental agreements with gas storage companies. The Board 
is pleased to report that, during 1967, Union Gas Company of 
Canada, Limited, voluntarily entered into negotiations with 
landowners in its gas storage areas for new higher gas storage 
rentals substantially in accordance with the principles set 
forth in the Gas Storage Report. At the end of the year, 
negotiations were continuing and had already resulted in the 
new rentals being paid to most of the landowners in the 
Payne and Waubuno Pools. 
JOINING OF INTERESTS FOR THE PRODUCTION OF OIL 

The Board made an Order on July 5, 1967, providing 
for the joining of interests for the production of oil from the 
Clearville Pool in the County of Kent. This is a small pool 
in which Imperial Oil Limited holds all the oil and gas 
leases. Oil production had declined to a low level and 
continued economic production was dependent on initiation of 
a pressure maintenance program. Initiation of such a program 
was in turn dependent on a joining of interests in the pool, 



- 13 - 

but the attempts of Imperial Oil Limited to obtain unanimous 
agreement for a joining of interests had been unsuccessful. 
The company therefore applied for an Order under section 24 
of The Ontario Energy Board Act, 1964 . The application was 
heard by the Board at Chatham on June 6, 1967, at which time 
all those opposed to the application were heard. As a re- 
sult of the objections, some important changes were made and 
the joining of interests was then brought about by the Board's 
Order of July 5, 1967. 

In dealing with the technical aspects of this 
application the Board had valuable assistance from the 
professional staff of the Department of Energy and Resources 
Management, who were working at the same time on a related 
application to the Minister under The Energy Act, 1964, for 
a permit to inject water for pressure maintenance. 
GENERAL 

The Board has continued to study and keep under 
review matters related to the oil and gas industry where the 
interests of the Province of Ontario are affected. The 
rapid expansion of the industry has created urgent demands for 
substantial additional supplies of gas for the Province and 
the "Great Lakes" project was therefore the subject of active 
interest during the year. A favorable decision of the 
Federal Power Commission in June, following a favorable deci- 
sion by the National Energy Board enabled Great Lakes Gas 



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Transmission Company, an affiliate of Trans-Canada Pipe 
Lines Limited, to proceed with the first stage of the 
project - that part of the line from the St. Clair River 
to storage fields of American Natural Gas Company in the 
State of Michigan. An important additional supply of gas 
was thus made available for the 1967 - 1968 heating season. 
The Board is keeping in close touch with developments 
affecting construction of the next and most important stage 
planned for 1968, the completion of the line to Emerson, 
Manitoba, and the spur line therefrom to Sault Ste. Marie. 

Union Gas Company of Canada, Limited, which 
joined with the other major distributors in contracting 
to take western Canadian gas made available by the "Great 
Lakes" project, has also entered into a long-term agree- 
ment with Panhandle Eastern Pipe Line Company for large 
volumes of gas from the United States. This agreement is 
subject to the approval of the National Energy Board and 
the Federal Power Commission. 

Northern and Central Gas Company Limited has 
commenced construction of a $3,600,000 peaking plant in 
the Sudbury area which will liquify and store natural gas 
during the summer months. During the winter peak periods 
LNG (liquified natural gas) will be taken from the above- 
ground storage tank, vaporized and fed into the Company f s 



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transmission and distribution system to supplement the 
gas supply from Trans-Canada Pipe Lines Limited. The 
storage capacity of the plant is 600,000 Mcf and the 
maximum daily output 40,000 Mcf. 

At the end of 1967, Northern and Central Gas 
Company Limited and two of its subsidiaries, Twin City 
Gas Company Limited and Lakeland Natural Gas Limited, 
were amalgamated pursuant to section 96 of The Corpora- 
tion Act and they continue as one company under the name 
of Northern and Central Gas Corporation Limited. 






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